European equity markets closed little changed this month, with the UK outperforming a notch, in the hope that the country would be able to face the consequences of Brexit.

During the first part of the month, European equities fell slightly, on concerns the Fed would soon be hiking its rate. A lower oil price was also hurting performances. Investors, too, were disappointed in the ECB’s decision to keep all policies unchanged. Later in the month, European equities recovered as the Fed lowered its rate outlook and oil prices rebounded on news of OPEC members reaching an agreement to reduce oil supply.

Euro-zone bank stocks also suffered, in the wake of the sharp drop in the Deutsche Bank share price. The German institution was hit by news surrounding a very large fine in the US, leading to renewed concerns about its balance sheet. DB and European bank stocks in general, however, partly recovered and were able to limit the damage, following press reports speculating about an agreement with the U.S. Justice Department.

Despite the Brexit, UK equities performed well in September.

  • ˜The luxury goods sector is turning around, with names like Kering contributing positively to fund performance. Golden Week (a week-long holiday in China during which people travel and spend) is very promising from this standpoint.
  •  Healthcare, and especially pharmas, continued to suffer from the uncertainties surrounding the US presidential campaign. Some will automatically be resolved after the elections, leading us to believe the valuation is fairly attractive and to set up some selective investments.
  • We remain underweight on Utilities and Telecom, because of their rate sensitivity.
  • The rebound in the mining and oil sectors hurt fund performance this month, since we had already taken our profits. Commodities continued to perform, driven by positive newsflow from China and OPEC.
  • The market appears to be seeking more cyclicality overall, thus turning more towards emerging markets.
  • Main moves this month: we reduced exposure to real estate (Unibail, Deutsche Wohnen), in favour of oil and banks (on a very selective basis, mainly in retail banking, which boasts strong pricing power, e.g. KBC, Intesa and BBVA). Despite these moves, we are still slightly overweight on real estate.
  • As we see it, there will be a distinct “pre-election” and “post-election” phase; in the meantime, volatility can be expected to rise.
  • During this period, any major downturn could prove to be an entry point, especially in cyclicals.

* Bottom-up sector allocation




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